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Home Business Business News

Deficits choke 2018/19 budget

by Johnny Kasalika
11/06/2019
in Business News, Front Page
3 min read
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Treasury has continued to spend more than the revenue generated in the 2018/19 fiscal year amid declining revenues, figures from the Reserve Bank of Malawi (RBM) show.

The figures show that in the third quarter (January to March 2019) of the fisal year ending June 30, budget deficit widened to K120 billlion or two percent of gross domestic product (GDP), from K96.4 billion or 1.8 percent of GDP in the second quarter (October to December 2018).

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Deficit graph 1 | The Nation Online

This is a continuation of deficits as in the first quarter (July to September 2018) budgetary operations also recorded a deficit of K86.1 billion or 1.5 percent of GDP.

Revenues, on the other hand, started on a good note in the first quarter of the financial year, rising by K17.1 billion to K258.9 billion following an increase of K15.5 billion registered in the previous quarter.

According to the 2018/19 Mid-year Budget Review document, Treasury had revised upward the estimated fiscal deficit in the year under review from K205.5 billion to K255.95 billion, or 4.8 percent of GDP, which was envisaged to be financed by K214.7 billion, or four percent of GDP, from domestic borrowing with the balance financed by foreign borrowing.

Before revising the fiscal deficit to 3.8 percent of GDP, Treasury had at the start of the financial year in June 2018 planned to end the fiscal year with a deficit of K242.9 billion which was to be financed by net external borrowing of K66.8 billion and domestic borrowing of K176.1 billion.

But RBM figures contained in the Financial and Economic Review show that the overall fiscal deficit in the three quarters were financed through both domestic and foreign resources.

Economics Association of Malawi (Ecama) executive director Maleka Thula on Sunday expressed concern over rising deficits, saying it could affect macroeconomic stability.

“The fear is that government continues to spend beyond its means as evidenced by deficits being recorded in most months. This is a concern as the government is seeking recourse to meet financing gap either on domestic or foreign markets.

“The end result is that private sector borrowing is crowded out and there is increased debt which disturbs macroeconomic stability,” he said.

Finance and corporate governance strategy professor at the University of Malawi’s The Polytechnic, James Kamwachale Khomba, earlier observed that every government, including developed nations, have deficits, but if used correctly, they can be a catalyst for development.

International Monetary Fund (IMF) resident representative Jack Ree observed that pre-election spending needs and Cyclone Idai continued to exert pressures on the fiscal management.

Former minister of Finance, Economic Planning and Development Goodall Gondwe early this year confirmed that there were cases of over expenditure that occurred.

But he said the expenditures were necessary for some programmes not to stall, among them elections and the 2018 Population and Housing Census.

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